The International Monetary Fund (IMF) has upgraded India’s growth outlook on the back of better-than-expected resilience in its domestic demand, it said in its latest World Economic Outlook update for January.
IMF now expects India’s GDP to grow by 6.7% in FY24, 40 basis points higher than its previous forecast of 6.3% given in the October 2023 update of its report. One basis point is one-hundredth of a percent.
For FY25 and FY26, India’s GDP growth is seen steady at 6.5%, a 20 basis point upgrade from its October 2023 forecast, the IMF said in its report released on Tuesday, January 30.
“Growth in India is projected to remain strong at 6.5% in both 2024 (FY25) and 2025 (FY26), with an upgrade from October of 0.2 percentage point for both years, reflecting resilience in domestic demand,” the IMF said in its report.
At 6.7% GDP growth forecast for India in FY24, the IMF’s forecast is lower than both the Reserve Bank of India’s 7% estimate and the National Statistics Organisation’s (NSO) first advance forecast of 7.3% for the financial year ending March 2024.
In FY23, India’s GDP had expanded by 7.2% over the previous year. So far in the first half of FY24, the Indian economy has grown by 7.7% between April and September 2024.
As for FY25, the government is of the view that India’s GDP could be closer to 7%, than the 6.5% projected by the IMF in its latest update.
On Monday, the Indian government released a report titled ‘Indian Economy—A Review’ prepared by the office of Chief Economic Adviser V Anantha Nageswaran, taking stock of the state of the economy and its journey in the last ten years.
“The strength of the domestic demand has driven the economy to a 7% plus growth rate in the last three years… The robustness seen in domestic demand, namely, private consumption and investment, traces its origin to the reforms and measures implemented by the government over the last ten years. The supply side has also been strengthened with investment in infrastructure – physical and digital – and measures that aim to boost manufacturing. These have combined to provide an impetus to economic activity in the country. Accordingly, in FY25, real GDP growth will likely be closer to 7%,” the report said.
This Indian economy review report by the CEA added that in the next three years, India is expected to become the third-largest economy in the world, with a GDP of $5 trillion.
“There is, however, considerable scope for the growth rate to rise well above 7% by 2030. The speed with which physical infrastructure is being built will allow the ICOR to decline, translating private investments into output quickly. The IBC has strengthened balance sheets and, in the process, has freed up economic capital that was otherwise rendered unproductive. The rapidly expanding digital infrastructure is continuously improving institutional efficiency. Technological progress is picking up pace with rising collaboration with foreign partners in the production of goods and services. Decisive steps have been taken to speed up human capital formation. Finally, the overall investment climate is increasingly becoming more favourable with sustained enhancement in the ease of doing business,” said the government report.
Meanwhile, the IMF raised its 2024 global growth forecast to 3.1pc, citing unexpected resilience in major advanced and emerging market economies around the world, including the United States and China.
The updated figure is 0.2 percentage points higher than the October forecast.
“The global economy continues to display remarkable resilience, with inflation declining steadily and growth holding up,” IMF chief economist Pierre-Olivier Gourinchas told reporters in South Africa on Tuesday.
“The chance of a soft landing has increased, but the pace of expansion remains slow and risks remain,” he added, alluding to policymakers’ attempts to successfully cut inflation by raising interest rates while avoiding a recession.
Despite the upgrade, the IMF predicts that global growth will remain below its recent historical average of 3.8pc this year and the next due to continued impacts of elevated interest rates, the withdrawal of pandemic-related government support and persistently low levels of productivity.
Among the Group of Seven (G7) advanced economies, growth in European countries looks set to remain weak, reflecting ongoing challenges, while Japan and Canada are expected to fare slightly better.
The IMF’s overall inflation outlook remained unchanged at 5.8pc for 2024, but that masks a significant underlying shift between richer and poorer countries.
Inflation in advanced economies is now forecast to be 2.6pc in 2024, down 0.4 percentage points from October, while emerging and developing economies are expected to hit an annual inflation rate of 8.1pc, up 0.3 percentage points.
Much of the increase can be attributed to trouble in Argentina, where consumer price increases exceeded 200pc last year amid an economic crisis.
“Excluding Argentina, global headline inflation will decline to 4.9pc this year,” Gourinchas said.
US, China lift growth
The United States and China, the world’s two largest economies, both saw significant upgrades to their growth outlook for 2024, putting them on track for a less substantial slowdown than the IMF previously anticipated.
The IMF now expects the US economy to grow by 2.1pc in 2024 — an election year in which President Joe Biden is seeking a second term — down slightly from an estimated 2.5pc in 2023.
This is largely due to the “statistical carryover effects from the stronger-than-expected growth outcome for 2023”, the IMF said.
China’s economy is on track to hit 4.6pc growth this year, up 0.4 percentage points, though it is still expected to slow down from last year’s figure of 5.2pc.
China’s growth upgrade “reflects carryover from stronger-than-expected growth in 2023 and increased government spending on capacity building against natural disasters”, according to the IMF.
India continues to be an ongoing bright spot in the global economy; the IMF now expects it to grow by 6.5pc this year — up 0.2 percentage points from October — following an estimated growth rate of 6.7pc in 2023.
The Fund also increased the growth prospects for Russia, Iran and Brazil for the year ahead.
Challenges remain in Europe
While many Asian economies remain buoyant, Europe continues to cast a long shadow over the global outlook, with the IMF highlighting “notably subdued growth in the euro area”.
Germany is once again set to be the slowest-growing G7 economy, expanding by just 0.5pc this year after contracting by an estimated 0.3pc in 2023.
The United Kingdom, France and Italy are all also expected to see growth of 1pc or less this year, while Spain’s economy is forecast to fare slightly better, growing by 1.5pc.
The tepid euro area growth reflects “weak consumer sentiment, the lingering effects of high energy prices, and weakness in interest-rate-sensitive manufacturing and business investment”, the IMF noted in the WEO report.
Despite some challenging forecasts, the overall picture in 2024 looks set to be less gloomy for many countries than it was in 2024: Every country cited in the report save Argentina is set to have positive growth this year.
This is an improvement from 2023 when four out of the 30 economies cited in the report are estimated to have contracted.